Governed by statute and case law, Pennsylvania estate administration is the act of opening, managing, and closing a decedent’s estate. When a Pennsylvanian (or non-resident PA property owner) departs for the great beyond, that decedent’s Earthly property must be properly managed and distributed according to Pennsylvania law. Generally speaking, the estate administration process consists of opening the estate, marshaling assets, paying creditors, paying inheritance tax, distributing remaining assets to beneficiaries, and closing the estate. Estate administration practice is extremely fact specific and there is never a “one size fits all” solution. Estate administration strategy is largely dependent on the decedent’s marital, family, and financial circumstances, as well as the decedent’s estate plan. With or without an estate plan in effect, it is always highly advisable that a decedent’s family members and loved ones seek an estates attorney’s counsel shortly after death or immediately after the funeral in order chart an optimal estate administration course.
To begin, a major question must be answered: to open an estate, or not to open an estate, that is the question. If there is a relatively small amount of probate assets, and if the decedent did not own real estate, a small estate settlement or family settlement likely can be pursued upon petitioning the Court. In these situations, inheritance tax still must be paid, and a petition and account of the decedent’s estate may be presented to the Court. Additionally, when one spouse dies, title to marital property automatically vests in the surviving spouse, which avoids the necessity of probate entirely for marital assets. Non-probate alternative estate settlement procedures can be utilized for both intestate and testate estates, and if such an alternative estate settlement route is desired, the guidance of an estates attorney is crucial.
At death, a decedent can die either intestate (without a will) or testate (with a will). In both of these circumstances, the decedent’s personal representative is responsible for administering the estate (the personal representative is often the surviving spouse, child, parent, or nominated executor under the decedent’s will). If the decedent had a will, the will typically nominates an executor who is charged with administering the estate. If the will is probated, the nominated executor takes an oath and is sworn in at the local Register of Wills office, and the Register’s office subsequently issues Letters Testamentary. If the decedent died without a will, Pennsylvania statute dictates the person(s) who can legally be appointed as administrator. Just like an executor, the appointed administrator takes an oath and is sworn in at the Register’s office, and Letters of Administration are subsequently issued. When either Letters Testamentary or Letters of Administration are issued, the executor or administrator, respectfully, gains legal authority to manage both the decedent’s assets and liabilities in the name of the estate.
Once Letters are granted, the sworn personal representative has a legal duty to notify estate beneficiaries of their interests, and the Register’s office must certify this notification, all within three months of death. Also, the personal representative must advertise the estate in two local periodicals. The publication of these advertisements begins a one-year time period for creditors to make claims against the estate. Additionally, the estate has a legal obligation to provide written notice of death to the Pennsylvania Department of Human Services (PA DHS) for the purpose of establishing any outstanding Medical Assistance provided to the decedent before death.
Once an estate is opened or underway, the estate should ascertain and/or liquidate assets owned by the decedent at the time of death. Typically, the estate’s attorney will work to liquidate, consolidate, or convey these assets, as well as gather all date of death values for each asset. Probate assets include both solely and jointly owned property, comprising bank accounts, stocks, bonds, trusts, business interests, real estate holdings and real property interests, tangible personal property, cash, jewelry, vehicles, and any other “thing” or “interest” of value. Non-probate assets include IRAs, annuities, and life insurance policies; importantly, many non-probate assets are still taxable and must be reported in the PA Inheritance Tax Return.
Estate assets are often sold and proceeds are deposited into a newly formed estate checking account, from which beneficiary distributions and creditor payments are made. Date of death asset values are determined via formal correspondence between the estate’s attorney and asset holders, and/or by formal appraisals; moreover, real estate assets are valued by tax assessment, appraisal, or by a recent sales price. Determining asset values on the date of death is absolutely necessary for both estate accounting and determining inheritance tax.
Alongside asset consolidation, the estate must determine legitimate expenses, debts, and other liabilities. Administrative expenses include probate fees, attorney’s fees, and other necessary costs of managing estate assets. The aforementioned estate advertisements and letter to PA DHS provides notice to any and all foreseeable creditors, including funeral directors, medical institutions, lienholders, lenders, credit card companies, and any other legitimate estate creditor. If there are more assets than debts, the estate is solvent, and beneficiaries will receive the remainder of estate assets, after tax, in appropriate shares according to statute and as elicited in the decedent’s will.
Conversely, insolvent estates always require special attention, and often these estates require Court authorization for creditor payments. Pennsylvania statute provides for the order of payments to different classes or tiers of estate creditors if the estate is insolvent. If estate money runs out at any given tier, creditors within that tier are typically paid pro rata, and lower tiered creditors may get nothing (being akin to pro rata creditor payments in bankruptcy proceedings). The estate’s attorney often negotiates with creditors for the purpose of estate debt settlement. If creditors are paid out of order, the personal representative of the estate can be held personally liable. When navigating estate insolvency, all debts are NOT created equal, and an estates attorney’s guidance is pivotal in order to avoid personal liability.
Finally, once all assets and debts are determined, the estate attorney conducts an accounting of the estate and files the PA Inheritance Tax Return. If there are more assets than debts/expenses, inheritance tax may be owed. Regarding federal returns, the vast majority of decedent estates do not federally file or pay federal inheritance tax. As of 2015, federal inheritance tax is only imposed on decedent estates exceeding $5,430,000.00. In all cases, PA Inheritance Tax is due nine months after death, but a six-month extension can be sought. If PA Inheritance Tax is estimated and paid within three months of death, the estate will receive a 5% discount on tax owed. If tax is not paid within nine months, without an approved extension, interest on inheritance tax accumulates. Outside of inheritance tax implications, the estate must also file an inventory of assets with the Register of Wills office. Additionally, the estate is required to file and pay the decedent’s final year(s) income tax return due on April 15 of the following year, as well as appropriate subsequent estate tax returns showing estate income and expenses. If the estate is not closed within two years, the estate must file a status report with the Register of Wills—this is not uncommon!
Estate administration is a long, detailed process that takes a year or more to complete. Under extraordinary circumstances, some estates may take several years to administer. Formal probate estate administration often can be avoided with careful estate planning, where a family settlement or small estate settlement can alternatively be pursued. For the benefit of loved ones and for peace of mind, it is always highly advisable to have a sound estate plan in effect that minimizes the surviving family’s burden. Whenever a spouse, parent, or loved one dies, next of kin survivors should quickly contact an estates attorney in order to select an appropriate estate administration strategy that will not only minimize the family’s burden, but will also maximize the estate’s beneficiary distribution potential.
THIS ARTICLE DOES NOT CONSTITUTE LEGAL ADVICE. This blog post is written and published for informational and educational purposes only and is not intended to constitute legal advice. Every client’s case is different, and a general synopsis of an area of law can be neither complete in its scope, nor specifically tailored to the unique facts of an individual’s case. If you need legal advice, you should contact an attorney regarding your specific factual and legal circumstances.